Corporation Tax Bill

House of Commons

Session 2008 - 09
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Corporation Tax Bill

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
376

(5)
In subsection (4) “the relevant period” means the period between—
(a)
the transfer of the relevant asset to the transferee, and
(b)
the transferee ceasing to meet the qualifying condition.
(6)
This section is subject to section 789 (merger carried out for genuine
commercial reasons).
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(7)
References in this section to “the transferee” and the relevant asset” must be
read in accordance with section 780.
(8)
For the way in which Chapter 7 applies if a company is treated as having
realised an asset as a result of this section, see section 791 (application of roll-
over relief in relation to degrouping charge).
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786
Character of credits and debits brought into account as a result of section 785
(1)
For the purposes of Chapter 6 (how credits and debits are given effect) credits
or debits brought into account because of section 785 take their character from
the purposes for which the relevant asset was held by the transferee
immediately after the transfer.
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(2)
But subsection (1) does not apply if conditions A and B are met.
(3)
Condition A is that immediately after the transfer the asset was held by the
transferee for the purposes of a trade, business or concern within section 747,
748 or 749.
(4)
Condition B is that the transferee ceased to carry on that trade, business or
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concern before it ceased to meet the qualifying condition.
(5)
If conditions A and B are met, a credit or debit brought into account because of
section 785 is treated for the purposes of Chapter 6 as a non-trading credit or
debit.
(6)
References in this section to “the transferee” and the relevant asset” must be
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read in accordance with section 780.
787
Company ceasing to be member of group because of exempt distribution
(1)
Sections 780 and 785 do not apply if a company ceases to be a member of a
group just because of an exempt distribution, unless subsection (2) applies.
(2)
This subsection applies if there is a chargeable payment within 5 years after the
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making of the exempt distribution.
(3)
If subsection (2) applies, all such adjustments as may be required, by way of
assessment, amendment of returns or otherwise, may be made within the
period of 3 years after the making of the chargeable payment.
(4)
Those adjustments may be made despite any time limit on the making of an
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assessment or the amendment of a return.
(5)
In this section—
“exempt distribution” means a distribution that is exempt because of
section 213(2) of ICTA (distributions involving shares in 75%
subsidiaries), and
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“chargeable payment” has the meaning given in section 214(2) of that Act.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
377

(6)
Subsections (7) and (8) apply for determining for the purposes of this section
whether one company is a 75% subsidiary of another company.
(7)
The other company is treated as not being the owner of any share capital that
it owns directly in a body corporate if a profit on a sale of the shares would be
treated as a trading receipt of its trade.
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(8)
The other company is treated as not being the owner of any share capital that—
(a)
it owns indirectly, and
(b)
is owned directly by a body corporate for which a profit on the sale of
the shares would be a trading receipt.
788
Provisions supplementing sections 780 to 787
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(1)
References in sections 780 to 787 (degrouping) to a company ceasing to be a
member of a group do not include cases where a company ceases to be a
member of a group in consequence of another member of the group ceasing to
exist.
(2)
For the purposes of those sections an asset acquired by a company is treated as
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the same as an asset owned at a later time by that company or an associated
company if the value of the second asset is derived in whole or in part from the
first asset.
(3)
For the purposes of those sections and this section two or more companies are
associated if, by themselves, they would form a group of companies.
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789
Merger carried out for genuine commercial reasons
(1)
Sections 780 to 787 do not apply if—
(a)
the transferee ceases to be a member of a group of companies (“the
group”) as part of a merger,
(b)
the merger is carried out for genuine commercial reasons, and
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(c)
the avoidance of liability to tax is not the main purpose of the merger
or one of its main purposes.
(2)
For this purpose “merger” means an arrangement in respect of which each of
conditions A to D is met.
(3)
Condition A is that—
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(a)
as a result of the arrangement one or more companies (“the acquiring
company” or “the acquiring companies”) acquire one or more interests
in the whole or part of the business which, before the arrangement took
effect, was carried on by the transferee,
(b)
the acquiring company is not a member of the group or, as the case may
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be, none of the acquiring companies is such a member,
(c)
at least 25% by value of each of the interests acquired consists of a
holding of ordinary share capital, and
(d)
the acquisition is not with a view to the disposal of the interests.
(4)
Condition B is that—
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(a)
as a result of the arrangement one or more members of the group
acquire one or more interests in the whole or part of the business or
each of the businesses which, before the arrangement took effect, was
carried on—

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
378

(i)
by the acquiring company or acquiring companies, or
(ii)
by a company at least 90% of whose ordinary share capital was
then beneficially owned by two or more of the acquiring
companies,
(b)
at least 25% by value of each of the interests acquired consists of a
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holding of ordinary share capital,
(c)
the remainder of the interest, or as the case may be of each of the
interests, acquired consists of a holding of share capital (of any
description) or debentures or both, and
(d)
the acquisition is not with a view to the disposal of the interests.
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(5)
Condition C is that the value or, as the case may be, the total value of the
interest or interests acquired as mentioned in subsection (3) is substantially the
same as the value or, as the case may be, the total value of the interest or
interests acquired as mentioned in subsection (4).
(6)
Condition D is that the consideration for the acquisition of the interest or
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interests acquired by the acquiring company or acquiring companies as
mentioned in subsection (3)—
(a)
consists of, or is applied in the acquisition of, the interest or interests
acquired by members of the group as mentioned in subsection (4), or
(b)
consists partly of, and as to the balance is applied in the acquisition of,
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that interest or those interests.
(7)
Section 790 supplements this section.
790
Provisions supplementing section 789
(1)
In section 789 “arrangement” includes a series of arrangements.
(2)
For the purposes of section 789(3) and (4) a member of a group of companies is
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treated as carrying on as one business the activities of that group.
(3)
For the purposes of section 789(3)(c), (4)(b) and (5) the value of an interest is
determined as at the date of its acquisition.
(4)
For the purposes of section 789(6), any part of the consideration for the
acquisition which is small by comparison with the total is ignored.
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791
Application of roll-over relief in relation to degrouping charge
(1)
Chapter 7 (roll-over relief in case of realisation and reinvestment) applies with
the modifications specified in subsections (2) to (4) if a company is treated as
having realised an asset as a result of section 780 or 785 (degrouping).
(2)
In section 755 (conditions relating to the old asset), for the references to the old
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asset being a chargeable intangible asset in relation to the company substitute
references to its being a chargeable intangible asset in relation to the transferor.
(3)
In section 756(1) (conditions relating to expenditure on other assets), for the
references to the date of realisation of the old asset substitute—
(a)
in a case within section 780, references to the date on which the
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transferee ceased to be a member of the group, and
(b)
in a case within section 785, references to the date on which the
transferee ceased to meet the qualifying condition.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
379

(4)
For references in Chapter 7 to the proceeds of realisation substitute references
to the amount for which the transferee is treated as having realised the asset.
(5)
A reduction of that amount as a result of a claim for relief under Chapter 7 does
not affect the value at which the company is treated as having reacquired the
asset.
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(6)
In this section “the transferee” and “the transferor” have the same meaning as
in section 780.
Reallocation of degrouping charge within group and recovery
792
Reallocation of charge within group
(1)
This section applies if a chargeable realisation gain (see section 741) accrues to
10
a company (“A”) under section 780 or 785 in respect of an asset.
(2)
A and a company (“B”) that was a member of the relevant group at the relevant
time may jointly elect that the gain, or such part of it as may be specified in the
election, must be treated as accruing to B, and not A.
(3)
In a case within section 780—
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(a)
“the relevant group” is the group of which A was a member at the
relevant time, and
(b)
“the relevant time” is immediately before A ceases to be a member of
the group.
(4)
In a case within section 785—
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(a)
“the relevant group” is the second group (within the meaning of that
section), and
(b)
“the relevant time” is immediately before A ceases to meet the
qualifying condition (within the meaning of that section).
(5)
The effect of the election is that the gain, or the part specified in the election, is
25
treated—
(a)
as if it had accrued to B at the relevant time as a non-trading credit for
the purposes of Chapter 6 (how credits and debits are given effect), and
(b)
if B is not UK resident at the relevant time, as if it had accrued in respect
of an asset held for the purposes of a permanent establishment of B in
30
the United Kingdom.
(6)
Section 793 makes further provision about elections under this section.
(7)
Section 794 makes provision for enabling claims under Chapter 7 to be made
by B.
(8)
In sections 793 and 794 references to “A” and “B” and “the relevant time” must
35
be read in accordance with this section.
793
Further requirements about elections under section 792
(1)
An election under section 792 may be made only if subsection (2) or (3) applies
to B.
(2)
This subsection applies if at the relevant time B was UK resident.
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(3)
This subsection applies if at the relevant time—

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
380

(a)
B carried on a trade in the United Kingdom through a permanent
establishment, and
(b)
B was not exempt from corporation tax in respect of the income or
chargeable gains of that permanent establishment because of
arrangements under Part 18 of ICTA (double taxation relief).
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(4)
An election under section 792 may not be made if at the relevant time B was—
(a)
a qualifying society within the meaning of section 461A of ICTA
(incorporated friendly societies entitled to exemption from tax), or
(b)
a dual resident investing company within the meaning of section 404 of
that Act (limitation of group relief).
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(5)
An election under section 792 may only be made—
(a)
by notice in writing to an officer of Revenue and Customs, and
(b)
not later than 2 years after the end of the accounting period of A in
which the relevant time falls.
794
Application of roll-over relief in relation to reallocated charge
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(1)
This section applies where an election has been made under section 792 for the
purpose of enabling B to make a claim under Chapter 7 (roll-over relief on
realisation and reinvestment).
(2)
Chapter 7 applies as if the realisation of the asset treated as occurring under
section 780 or 785 had been by B, and not A.
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(3)
The conditions in section 755 (conditions relating to the old asset) are treated
as met in relation to the asset if they would have been met if there had been no
election and A had made the claim.
(4)
The proceeds of realisation and the cost of the old asset recognised for tax
purposes are what they would have been if there had been no election and A
25
had made the claim.
(5)
If the election relates to only part of the gain on the realisation of an asset
treated as occurring under section 780 or 785, Chapter 7 and this section apply
as if the realisation treated as occurring had been of a separate asset
representing a corresponding part of the asset.
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(6)
If subsection (5) applies, any necessary apportionments must be made
accordingly.
795
Recovery of charge from another group company or controlling director
(1)
This section applies if—
(a)
a company (“A”) is liable to a degrouping charge,
35
(b)
an amount of corporation tax has been assessed on A for the relevant
accounting period, and
(c)
the whole or part of that amount is unpaid at the end of the period of 6
months after the time when it became payable.
(2)
An officer of Revenue and Customs may serve a notice on the persons to whom
40
this subsection applies (see subsections (3) and (4)) requiring them to pay the
lesser of—
(a)
the amount of corporation tax referable to the degrouping charge (see
section 796(2)), or

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
381

(b)
the amount that remains unpaid of the corporation tax payable for the
relevant accounting period by A.
(3)
If A was a member of a group at the relevant time, subsection (2) applies to—
(a)
a company that was at that time the principal company of the group,
and
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(b)
any other company that at any time in the period of 12 months ending
with the relevant time—
(i)
was a member of that group, and
(ii)
owned the relevant asset or any part of it.
(4)
If at the relevant time A is not UK resident but carries on a trade in the United
10
Kingdom through a permanent establishment, subsection (2) applies to any
person who is a controlling director—
(a)
of A,
(b)
of a company that has control of A,
(c)
of a company that had control of A within the period of 12 months
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ending with the relevant time,

or was such a controlling director during that period.
(5)
Section 796 applies for the interpretation of this section and in that section
references to “A” must be read in accordance with this section.
796
Interpretation of section 795
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(1)
For the purposes of section 795 and this section—
“the relevant accounting period” is the accounting period in which the
degrouping charge falls to be brought into account by A,
“the relevant time” is—
(a)
in a case within section 780, when A ceased to be a member of
25
the group,
(b)
in a case within section 785 , when A ceased to meet the
qualifying condition (within the meaning of that section), and
(c)
if there has been an election under section 792, the time that
would have been the relevant time under paragraph (a) or (b)
30
had there been no such election, and
“the relevant asset” is the asset in respect of which the degrouping charge
arises.
(2)
For the purposes of section 795 the amount of corporation tax referable to a
degrouping charge is the difference between—
35
(a)
the tax in fact payable for the relevant accounting period, and
(b)
the tax that would have been payable for that period in the absence of
the degrouping charge.
(3)
References in section 795 and this section to a degrouping charge are to—
(a)
a credit required to be brought into account under section 780(3) or
40
785(4), or
(b)
if there has been an election under section 792, a credit required to be
brought into account as a result of the election.
(4)
In section 795 and this section—
“director”, in relation to a company—
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Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
382

(a)
has the meaning given by section 67(1) of ITEPA 2003 (read with
section 67(2) of that Act) and
(b)
includes any person falling within section 417(5) of ICTA (read
with section 417(6) of that Act),
“controlling director”, in relation to a company, means a director of the
5
company who has control of it, and
“group” and “principal company” have the meaning that would be given
by Chapter 8 if in that Chapter for references to 75% subsidiaries there
were substituted references to 51% subsidiaries.
(5)
In subsection (4) “control” has the meaning given by section 416(2) to (6) of
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ICTA.
797
Recovery under section 795: procedure etc
(1)
A notice served under section 795(2) may require the payment of the amount
required to be paid by the notice within 30 days of the service of the notice.
(2)
The notice must state—
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(a)
the amount of the tax referable to the degrouping charge (within the
meaning given in section 796(2)),
(b)
the amount of corporation tax assessed on A for the relevant accounting
period that remains unpaid,
(c)
the date when it first became payable, and
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(d)
the amount required to be paid by the person on whom the notice is
served.
(3)
The notice has effect—
(a)
for the purposes of the recovery from that person of the amount
required to be paid and of interest on that amount, and
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(b)
for the purposes of appeals,

as if it were a notice of assessment and that amount were an amount of tax due
from that person.
(4)
A person who has paid an amount required to be paid by a notice under section
795(2) may recover the amount paid from A.
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(5)
A payment required to be made by such a notice is not allowed as a deduction
in calculating any income, profits or losses for any tax purposes.
(6)
In this section “A” and “the relevant accounting period” have the same
meaning as in section 795 (see section 795(1) and section 796(1) respectively).
798
Recovery under section 795: time limit
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(1)
A notice under section 795(2) must be served before the end of the period of 3
years beginning with the date on which A’s liability to corporation tax for the
relevant accounting period is finally determined.
(2)
In subsection (1) “A” and “the relevant accounting period” have the same
meaning as in section 795 (see section 795(1) and section 796(1) respectively).
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(3)
If the unpaid tax is charged because of a determination under paragraph 36 or
37 of Schedule 18 to FA 1998 (determination where no return delivered or
return incomplete), the date mentioned in subsection (1) is the date on which
the determination was made.